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Oil’s Rise to Boost Canadian Dollar

By Sean Hyman   |   Monday, 27 Jun 2011 08:42 AM

This past week, the governments of the world tried to meddle with the price of oil. The IEA announced that 60 million barrels of oil would be released into the market.

The initial “shock” of this did drive down the price of oil. However, these reserves will be released over 30 days.

Since global consumption is huge, that’s only about 1 percent of global consumption. So initially the number 60 million sounds big, but when put into the context of global consumption, it’s not that big at all.

You see, governments are just grasping for anything they can right now. They’ve already brought interest rates down to the lowest levels on record. They’ve already printed tons of money. Now they’re trying to bring down the “tax” of oil in hopes to increase overall retail consumption due to a price break at the pump.

However, they can play all the games with oil that they’d like … and in the short run they may win (although doubtful), but in the long run, there’s no way for them to change the trajectory of oil.

Oil prices will continue to rise over the long-haul. Why?

Oil production in the U.S. peaked in the 1970s. Those that don’t believe it peaked then surely believe that it has peaked long before 2011.

When our oil production peaked, Saudi Arabia’s oil production was still going strong. However, now their oil production has peaked. Oh, we don’t have official proof of that — but if they could have pumped more oil at $115 a barrel, I assure you they would have.

They’ve said they would pump more oil to make up for Libya’s 1 million barrel a day loss but they haven’t — because they can’t.

So with U.S. oil production having already peaked and with Saudi Arabia now being in the same shape and with the missing oil production of Libya, oil’s ascent will continue over time. It may experience some short-term bumps as governments meddle with it by dumping oil on the market or by increasing margin requirements on oil traders. But in the end, there’s nothing you can do to offset the demand versus supply imbalance.

The fact remains that demand continues to increase. Back in the 1970’s many families were still a “one car family.” Today mom has a car, dad has a car, the two teenagers have cars, etc. So we’re increasing the demand upon oil.

But it’s not just us. China and India are putting more cars on the road and driving more now all the time too now that they are coming into their newfound prosperity.

All of these dynamics won’t change soon. If anything, the demand will continue to increase over time.

It will be many, many years before we have a “true” viable alternative to using oil.

All of this is good news for Canada. While it’s not cheap to pull oil out of their oil sands, at today’s prices they are well able to profit by tapping the oil in their oil sands.

As oil prices continue to rise over time, the profit margins will widen as costs remain relatively the same but the price of oil in the market place rises.

This will cause Canada and its economy to prosper all the more. As this happens, it will continue to be bullish for their currency.

This is why I’m a long-term bull on the Canadian dollar. The supply-demand dilemma with oil won’t change anytime soon. Well, that’s a good thing for those that are investors in the Canadian dollar.

So take some of your ailing U.S. dollars and convert them to Canadian dollars or buy a Canadian dollar ETF or trade the CAD in the spot forex market. But whatever you do, get some of your money out of U.S. dollars and into a superior dollar, the Canadian dollar.

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This past week, the governments of the world tried to meddle with the price of oil. The IEA announced that 60 million barrels of oil would be released into the market. The initial shock of this did drive down the price of oil. However, these reserves will be released...
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